the loan/core deposit ratio of large commercial banks in the United States had increased significantly since 1992, growing from just under 100 per cent in 1992 to more than 140 per cent in 2000 (Wetmore 2004, p. 103). Across all US commercial banks, the loan/deposit ratio grew from around only 20 per cent in 1945 to over 100 per cent in 2001 (Wetmore 2004, p. 99). This indicated that total loans advanced to borrowers exceeded total deposits, effectively meaning that advances to borrowers were partially financed by other sources, including foreign loans. At the same time, the loans/assets ratio also grew from around 20 per cent in 1945 to almost 60 per cent in 2001 (Wetmore 2004, p. 99).
A number of factors contributed to this:
• a decline in deposits
–– declining interest rates and strongly performing stock markets encouraged individuals to move funds from savings accounts to other investments; and
–– consumption boomed in the benign economic environment, leading to a decrease in the rate of savings
• an increase in lending
–– a growing economy encouraged increasing lending activity by both firms and individuals; and
–– low interest rates increased the demand for cheap forms of capital.
US commercial banks were at a risk of ‘wholesale money flight’ by virtue of an excess of loans over deposits.